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Squawk on the Street

News/Business. Melissa Lee, Carl Quintanilla, David Faber. Opening bell market action. New.

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03:00:00

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San Francisco, CA, USA

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Virtual Ch. 58 (CNBC)

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mpeg2video

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ac3

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704

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480

TOPIC FREQUENCY

Dell 58, Europe 34, S&p 34, U.s. 20, China 18, Us 11, Carl 10, Jim 10, Moody 's 9, Siemens 6, Boeing 6, Floyd Abrams 5, Jim Cramer 5, Hp 4, Faa 4, Oracle 4, John Malone 4, Novak 4, David Faber 4, Barclays 4,
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  CNBC    Squawk on the Street    News/Business. Melissa Lee, Carl Quintanilla,  
   David Faber. Opening bell market action. New.  

    February 5, 2013
    9:00 - 12:00pm EST  

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siemens. answers. with fidelity's new options platform, we've completely integrated every step of the process, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account. welcome back to "stock of the day". the shares trading after merrill
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lynch upgrading the stock to underperforming. they'll release a statement about the potential buyout. >> we've been watching the futures all morning. if you want to take a quick look, after yesterday's big pullback, some people thinking that was the beginning of the pullback, you will see the futures indicated higher. up by almost triple digits. dow up just by 84 points. we want to thank our guest hosts today. >> great to have you guys. thank you both. >> we don't necessarily come as a team, but sometimes. >> now it's time for "squawk on the street." futures higher trning, that's something the bulls might say, don't call it a comeback. we're still here. i'm carl quintanilla, with melissa lee, jim cramer is here, and david faber.
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europe stabilizing as service pmi showing overall slowing of contraction. in china, services pmi accelerating to 54. as markets climb back from the s&p's worst day since november, is today's market going to demonstrate investors' willingness to buy the shallowest of dips. >> the business that accounts for half of sales down 6% for the recent quarter. >> justice department's lawsuit raising all kinds of questions. is this payback for downgrading the sovereign debt? >> and will today bring news of a dell lbo, and if it happens, what is the effect on equity markets, credit markets, the pc sector and michael dell himself. >> we start with the markets today. futures off the highs of the morning. the biggest decline of the year so far.
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s&p fell back below 1,500. the markets topped out, or is there more room to run for the bulls. jim is back from new orleans and other exotic locales. >> oh, yeah. >> good to have you back. >> thank you, carl, good to be back. >> are we in a new kind of environment? >> i think there's some program selling. the dow 14,000, a lot of institutions might say, okay, enough is enough. let's do some lock-in. i think we always have to return to earnings. earnings have been surprisingly strong. we are now seeing deal flow. the dell deal, virgin media deal. i think they put a floor on the market. >> yeah. >> the deals themselves you think? >> yes. >> as a reflection of confidence? as a reflection of what? >> you know, virgin media, david and i were looking at the chart before this. virgin media, this stock was at 23 in june. and people didn't think it was too high then. and they don't think it's too high now.
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very smart coming in. >> we could see a deal above 50 bucks a share. >> 50? >> i don't know. that's david faber just saying, according to a bunch of my hedge fund guys, hoping. we may get a deal today. >> use third person for yourself. >> i did. >> jim cramer said david faber said it's 50, could be 50. >> bo jackson used to do that a lot, too, didn't he. he had a reason to. because he was the most unbelievable athlete of all-time. >> this is a global deal. i know we're woe is me europe, do i want to own a european cable company if europe's falling off the cliff? someone smarter than me says yes. >> john malone is smarter than you. >> hey, david. >> i feel so -- >> way to put a man down. as soon as he comes back. >> how about he's a close second.
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>> that's pretty good. >> i feel so much better. >> impact on markets of a del, lbo, if in fact that's what we get in the near term here. >> there was a moment where it would have been fanciful. it's too big. we heard that from you initially. it's too big. we may be in an ajr moment. >> i don't think so. listen, the reason we thought it was too big was because the equity check is when you would have penciled it out enormous. at the end of the -- when we see the deal, which we expect to shortly, we'll see that the equity check was far smaller. and so i don't think it argues for -- >> i remember when you first -- >> in terms of lbos, it may begin animal spirits where you start to see a $10 billion lbo, or 12. you'll get to 20 much harder, because you do get to the large equity checks, because you have a founder rolling in 60% and putting in another $700 million. >> and microsoft playing in the deal, too.
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what does it say about microsoft wanting to finance part of the steel in order to keep their users alive, basically? >> microsoft is everywhere. i think they're flailing. i think they'll throw money here, throw money there. they'll do gaming, telco, whatever is necessary to keep them in the game. dell was at $9 and now it's $13 and change. that's a hardware and company. we came into the year thinking hardware was dead. hewlett-packard's been one of the great performers in the dow. and dell has been one of the best performers. >> that $9 level is important, because when we see this deal printed, whether it's $13.60, or $13.70, i'm not sure of the specific price, some investors are going to say, well, that's not enough. you're going to be reminded the unaffected stock price, $9.50, where would it go if the deal breaks. probably lower. >> and the pressure on the bonds, we've seen that already
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on the bond? >> yes. when the news of the talks was broken. >> so again, your reporting indicates any minute now we should be getting the price release? >> outlook waiting for the press release. it is my expectation that we will get it prior to the open of trading this morning. >> separate from dell, jim, somebody pointed out on january 3rd, you said the markets would not face political equity risk until after the super bowl, which is exactly what happened the day after the super bowl. europe reared its ugly head in a political context. >> i also predicted the ravens. so i'm 2 for 2. >> 2 for 2. >> i think that europe is worse than we think. united states, better than we think. asia, far better than we think. so i think -- i mean, i saw the martinique -- i will go as far as to say, do not sell american
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stocks any more off of europe. it's a sucker's game. >> on that note, ron baron on "squawk" this morning talking markets. listen. >> i'm expecting 7% average growth for an extended period of time. the economy's growing about 7% a year. including inflation. and how long is that going to take? if you grow 7% a year, that means you double your money every ten years. that means if the stock market is 14,000 now, it could be 28,000 in ten years, and it could be 50,000 or 60,000 in 20 years. >> nice long-term bullish view of the markets. not just for the six months or even the next year. >> you compare it to bonds, which is what he's doing, you feel pretty darn good. it's also -- there's a lot of good chatter about pension plans being so far behind. i would love it, just in terms of companies being able to return money, if they were less worried about pension plans. that kind of talk makes me maybe
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embolden pension plans to say, let's get a little more risky and maybe we can pay off. that's also going to be very important for stock valuations. >> right. it's going to be another flow of funds into the market from the pensions, not only from the individuals which we've seen. i mean, did you catch vanguard's flows for the month of january? $24.8 billion coming into vanguard's. >> you're saying they're going to increase their allocation? >> yes. they've been underfunded for a very long time. this is not a new situation at all. we've been dealing with zero percent interest policy for a long time. >> the companies that are trying to ship the 401(k) are doing better. that could happen, too. i think the money in, is already being bet against. you know what, go around the country, everybody's like, oh, the retail guy is back. four weeks back, four years out, can you at least give retail investors a couple of months? would that be so bad?
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>> who's asking so much? >> who are you now, highman roth? >> jerry seinfeld. all right. let's talk about shares of yum brands, because they're down sharply premarket. taco bell, pizza hut, comp sales in china, which is yum's market, does not expect to achieve any earnings growth in 2013 because of the food scare in china. the worst part about this, jim, is for january and february, combined, they're predicting a 25% decline in same store sales, which indicates this is not just a matter that was finished in january when the investigation by the shanghai food and drug administration was closed. but this is an ongoing pr issue that they're going to have to deal with. >> we are hoping to get clarity this morning on the conference call. this is clearly much worse than expected. i think that this is right off
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of 2013, which i didn't want to hear. i think that, remember, whenever we have these situations, whether it be jcpenney, whether it be yum, when you have the double digit decline, what that says is, you can't come back within a reasonable period of time. >> that's true. the ceo on the conference call saying, we cannot predict how long it will take to restore sales. they're confident they can do so, but they just don't know how long at this point it will take. the thing about, as you all know here, fast food in china is that people go to fast food chains, particularly u.s. fast food chains because it is perceived they have higher quality food than local brands. so when that higher quality food that that reputation goes away, it's going to be very hard to win the consumers back. >> if you're buying the stock, which i'm ng, you're betting on novak. novak's a survivor. novak is a fellow -- he had a very similar address that i did at one point the.
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he lived in his car. this guy is a comeback kid. he can't come back in the -- >> the one thing i will say is the head of yum in china, sam su, is regarded as the godfather of fast food in china. he is the one who really made yum its presence, bigger than mcdonald's on the ground in china. born and raised in china, went to school here in the united states. maybe he has sort of a better sense of how to get back into the chinese market. it's going to be a big challenge. >> he's kitchen sinking, i think. one of the things that is the devil yum for the last 15 points, is that they can't get their arms around how bad it is. >> yeah. >> it's real bad. now they're saying it's real bad. maybe that creates a floor. i don't knowment let's say 57. >> january, did you mention this? down 41. it's hard to see how those numbers could continue to contract at that pace. >> yeah. >> but you're right off of 2013,
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point well taken. the justice department meantime has filed a civil lawsuit against standard and poor's and parent company mcgraw and hill. the firm had already responded to the lawsuit before it was even filed saying it was entirely without merit. s&p's lead attorney floyd abrams will be a guest on "squawk on the street" in the next hour and a lot of discussion about motives. why s&p, why not others. why civil, not criminal. >> i don't think they're playing politics. i think this justice department is above that. i think that in the end, the fact is that if they can get a fraud charge, then everybody who rely, and some guys -- some of us say, well, you know, a lot of these people have their own credit departments. david, from your book, i know that a lot of people just rely entirely on those ratings. if you get a fraud count, and the government wins, isn't there
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potentially 400, $500 billion worth of -- you know, everybody -- >> will it unleash the gates of different lawsuits. they have said these are simply opinions. they have asserted their first amendment rights in other cases that have taken place. in fact, they have actually won. that's one of the reasons that abrams is one of their attorneys. we'll see. you've got to remember, they are prosecuting under forea, a remnant of the savings and loan bailout. it is a lower burden of proof that has been used most recently to go after a number of the big banks on mortgage related securities issues. and they have settled many of them. in this case, as i reported yesterday, they were looking for more than $1 billion in terms of a settlement. and they wanted an admission of guilt. because then it brings up other lawsuits. >> how many did they say -- >> mcgraul-hill they said they had no interest in settling. this will be years down the road
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before it goes to trial. by the way, we should point outer rick holder, the attorney general, is going to be holding a press release. >> is it $500 billion -- how many did they rate? >> oh, yeah, tens of billions of dollars. structured products, as in cdos, enormous gravy train for the rating agencies. moody's had the highest operating margins than any s&p company for five years in between 2002 and 2007. five of those seven years. but moody's is not a part of this. which i do find strange. >> all the stocks down sharply. >> stock down sharply. state ags may get involved, according to "the new york times." i have not heard that. but my moody's was not a part of this. it's at least a question. i don't understand why it wouldn't be. why wouldn't this be a concerted action against all the rating agencies? and we are six years since this was allegedly -- >> maybe they have someone. >> right. >> maybe someone's cooperating
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with the government. >> there were plenty of people who testified in front of various committees in front of the financial crisis commission. >> we're on the floor of the stock exchange where people are convinced there is a con spir assy theory out there with the government. >> and the fact that the s&p is the only one that did that. >> exactly. >> united states of america, and i haven't seen them, other than nixon, play politics. when nixon fired the justice department people. and i think that holder's above it. i actually -- i mean, this is -- get out of law school, you went to work for justice. i've always felt justice is fair and honest. i'm not going against the justice department now. >> when we come back this morning, apple out with its new version of the fourth generation ipad today. not for your everyday consumer, that's for sure. talking more corporate customers. we'll find out how the company is trying to change its game and
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if it has a chance of working. and looking at some of the most expensive hotels in the world. we continue to be on the outlook for any movement out of dell. there's a look at futures up decidedly today. "squawk on the street" is back in a minute. [ male announcer ] i've seen incredible things. otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second.
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disney is leading after the bell earnings break. calling for the dow component to
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earn on its shares. chipotle warned of higher food costs affecting its bottom line. zinga also said to release results ahead of that report. jim, lots to get through this evening. >> yes. disney, last quarter, people didn't like the movies. they even were worried about espn. and then the stock is up, this fabulous performer. i think the same thing will happen again. trigger pullers will say it's not good enough. we look at it, a month from now, and it's above 54. i do not -- there's a lot of good theme park news coming. i think that espn has done remarkably in this recent quarter. a big year for espn. those who want to sell it, and think they can be clever enough to come back in it, good luck to you. it's not worth selling. >> will we see the turn finally in chipotle stocks on the back
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of the earnings? i think a lot of people are hoping they'll say they'll be able to raise prices. the drought is impacting their ingredients. >> i think they have the ability to raise price. i think they've guided down enough. if you remember, the last guide down, this stock started going up. >> yeah. >> that said, this has been panera's time, not chipotle's time. i think chipotle has to regroup, and when they start to have big comp sales, because the ticker's up, then they'll -- >> they're going to cater like panera, and they're offering new products. they're offering shredd eded to in california. >> think they want to get it close enough to the opening bell? thanks, guys. >> good, david. >> i don't have it in my inbox, so i'm going off headlines like
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everybody else here. >> $13.60 in cash. $24.4 billion. 37% premium. and the release by michael dell and silver lake, david. >> all of what we've expected. in fact, yesterday during the show, here's the release of my inbox now. we were told it would be closer to $13.50. there may be disappointment out there. again, you've got to come back to the idea of where the stock was before they will argue before that goldman sachs research piece that posited the idea of the lbo, around $9.50. it is an enormous deal in which michael dell will still have, or in many ways still have control, that he doesn't currently have, of dell, given that he's putting in his own outside cash and rolling in his 60% interest. they are valuing the deal $24.4 billion. as carl said, 25% premium over the last trading day before they
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call rumors, with possibly going private. 30% -- >> del will continue to lead as chairman and ceo. maintain a significant equity investment in the company, contributing his shares. >> i'm always wondering, when a company goes private, what will they look like when they come public. this company's done a lot of service. they do a lot of consulting now. this company has to come back out as a nonhardware company. >> does this put hewlett-packard at any sort of disadvantage? as it tries to rationalize its business? being a private company, does dell have an advantage that it can move quicker in streamlining the business, selling parts of the company as hewlett-packard tries to do the same? >> you know, out of the spotlight of wall street and analysts and expectations, you can certainly do some more bold things, one would argue. at the same time, they're going to be dealing with a lot of debt on their balance sheet, which does constrain them to a certain extent in terms of ak which
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sagss. i've got to get more details of where that comes in. you've got the microsoft money, a number of other things. it cuts both ways, you could argue. >> you also have the possibility that hewlett-packard could take some actions. i see the stock ticking up. don't forget, hewlett-packard can come in and say, you know what, guys, take your dell out, we'll give you the pcs for free, we'll give you the sun micro for free, give it to us. >> the deal does include something now included in almost all of these go privates, which is a go shop of a 25-day period under which a successful competing bidder makes a qualifying proposal. the break-up there will be very, very low n terms of any -- if you were to get that. my expectation is, you'll not see any sort of strategic come. you might have already expected, were there some interest str
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strategically, they might have come before the announcement weeks ago. dell has been considering its options for some time. in terms of trying to create value, whether it be splitting the company in some way, or examining strategics in the past. this special committee has been at it for a while. and they have run a fairly buttoned-up process that is a process that inhermtly has a lot of con flictsz when you have a founder and ceo involved in the taking of the private company. >> is there money on the sidelines, now that they're involved, taking a look at a hardware company, they take a look at other down and out tech companies, they see cash flow and go to work? >> you mean in terms of other lbos? >> yes. >> absolutely. >> you do? >> i think, again, you've got this hurdle rate of enormous lbos, not because of the financing market not cooperating. the financing is there, $15 billion or close to it here. and they could raise it even more. it's the equity check. it's what gave us pause originally when these leaks
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started. but we realized the equity check from private equity is not large in this deal. but that's unique. yes, $10 billion technology deal. $12 billion. beyond that, it becomes more difficult until it's a different situation. >> there are so many tech companies selling at 8, 9, 10. i'm not talking about microsoft and intel. >> the smaller ones. >> the smaller ones that, they've given up for dead. >> if i were a bond holder of any of these companies, i would be scared to death. if i were to believe lbos is coming back, i wouldn't wanted to be in there as a bond holder. >> what do they make of these bonds anyway? >> there's a lot of money that has to be in bonds, and they're trying to pick up 30 basis points, 50 basis points. it's stupid as all getout to stay in a tech bond after this, i've got to tell you. >> a buyout at $24 billion,
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12-month trailing. is that a bargain? did these guys get a bar gain? 5.1. >> it depends. the key here will be how fast will the decline continue to be in the overall pc business, and how can they weather that. what does that number look like that next year and the year after? >> the server business is crowded. we know that from that not so great emc call. this is a very secular declining business. >> yeah. it was trading at a multiple, many would argue, was cheap in retrospect certainly. but also taking into account, was this a business in a fierce war with tablets, which mr. dell admits he kind of missed. >> yes. >> we'll see. >> they're going to have to -- it's kind of like working on your car engine while the car is running. you point out the need for the cash, jim. >> yeah. look, i think michael dell really did believe that the
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tablet was a degree, a fad. he really made a very big bet on government spending. and government spending went down. but he is an honorable man who has done a great job trying to turn it around in a time people just say, i like apple. now, i know -- or samsung. but apple's been a terrible stock, but there are a lot of people who switched to apple. >> what do you think meg whitman is thinking right now? is she feeling more pressure? >> or ellie ellison. >> does it put more pressure on them to do something about their businesses? >> for every dell client today, i'm going to say, we'll give away the hardware. now, justice department says you've got to be careful. but i think that they go after every single -- >> it's an opportunity. >> yes. dell's been trying to crack into all sorts of one stop shop.
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the oracle deal yesterday. i think they'll be on the phone today saying, listen, dell, distracted, let us come in. here's your hardware. >> to that point, let's not forget there's going to be a regulatory review here. it's going to be months. four months, five months, i think they need anti-trust approval. china, which is not that easy to get lately, this is going to take a while before it closes. >> so is the time value of money right here? >> i don't know. figure that off the $13.65. to your point as well, they'll continue to run their business. but it's not as if tomorrow dell's a private company. it will take some time before the deal closes itself. it's still interesting to think about conflicts. when did michael dell really think, i'd like to buy my company, i'd like to buy all of it. how do you operate your company if you're thinking about doing it. >> in 2010, remember, you showed me, he made a comment he might take it private if it doesn't
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get the sgls how much glen hutchins. this is going to start the narrative of what could determine his long-term reputation in tech. knowing what we already know about him in tech. >> a buddy of mine in law school, he has been the greatest success story of my class. and will continue to do so. he's never made a -- i can't recall -- i'm sure there's somewhere, a wrong move but glenn hutchins. >> how about an impact, david, just in terms of optics on banks, on their ability to help finance deals like this, in this environment. i wonder if it's the beginning where we have to start thinking about them differently. >> we've had guests come upon and say, hey, we can do it, $15 billion financing, from jpmorgan. which, by the way, is not financing this, because they were advising the special committee. and there is no so-called staple financing any longer. they wanted to avoid every pitfall they could. you have to believe the pressure
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is going to be on some of their competitors out there to say, what's the next big one. let's put more money to work. let's get some deals on the table. not necessarily at $20 billion, but why can't we at least think $7 billion to $10 billion. >> yeah. these 1s and 2sees -- >> we know the markets are for bank loans. >> dell is halted, by the way, officially. [ bell ringing ] >> there's the opening bell. a look at the s&p. blackrock celebrating shares. we're at the nasdaq, verint systems. we covered a lot of ground and it's only a half an hour, guys. interesting news on boeing, just to switch gears briefly, jim.
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asking the faa for permission to do some test flights even as the journal says regulators are stumped. their word, stumped. >> the condition of boeing right here tells me, do not leave all the negatives. i am a huge believer in boeing. the stock tells me in part that it's a winner. mcinernie is a winner. i think they'll solve this problem. i really do. i think this is maybe the greatest engineering company -- i know there was some disgruntled engineers that jim cramer on twitter said, jim, we're pressured, we're pressured. the boeing i know is safety first, always has been, and that's why it's the greatest manufacturer on earth. >> macy's, target, bed, bath & beyond, they want more exposure to the retailers to the recovering housing market. these are the ones to play. macy's seeing the biggest pop of the three so far, up by 1.8%.
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>> we've got some downgrades on home builders. but not downgrades on product that goes into homes. i come back to, this is a sweet spot. it's interesting, there's a note in the jcpenney piece today which says martha stewart will be still involved in some of their home furnishings. there had been a lawsuit with macy's. >> on this show tomorrow, sfeeking of retailers, a hike up limited. >> that's interesting, because mastercard, people didn't like their guidance. obviously they're putting their money where their mouth is. and i think that is very good. by the way, two are eaton and emerson, really confusing quarters. very difficult to read eaton because of an acquisition.
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emerson stocks trade up. these will be vacated initially and people come back to them. i will have someone on from eaton tonight. >> mcgraw-hill continues their decline. the story hit yesterday, perhaps people, given there's so much litigation out there of various types, haven't focused enough. maybe when we told them that the government wanted at least $1 billion, they started to -- the stock sank later in the session yesterday. in addition to what was a 14% decline yesterday. a long potential road ahead of it here. we're all going through this complaint that was filed late, late last night. in los angeles court. >> that's a big complaint. >> a lot of stuff in it. we'll be talking to floyd abrams. >> these analysts don't know how to analyze it, david. >> it's unanalyzable at this point. there's too many unknowns. >> any company i know who have been caught in the crosshairs of justice, it's different.
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justice, you don't want to do business with a company that is being attacked by the justice department. if you're a bond issuer, you're worried. >> so beyond what could happen with the doj, in terms of just loss of customers, do you think a bleeding of business will take place as this gets settled and worked out? >> i think we always have this element of justice. this is not criminal. >> this is not criminal. a low burden of proof, though. i know it gets complex. >> this stock is discounting a win by justice, a fraud claim, and then everybody's suing. and i don't know, i mean, i think that the unanalyzable people are just fleeing so quickly, there is a core of business here that is very good. these rating agencies have survived a lot of scrutiny,
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david. >> it's amazing they've survived as well as they did, one could argue. there were so many different parties who were culpable for the financial crisis, no doubt about it. but you can make an argument, they were the oil that greased the great structured products machine that resulted in so many losses for so many financial institutions. >> the stock's been a winner. so it's got room to go down. >> moody's down again today. in terms of the dell complex, shares still halted. still seeing movement in terms of intel, higher by more than 1%. microsoft higher by a fraction of a percent. not too much of a major impact. we'll keep you posted on when dell reopens for trading here. it was halted up 1% at $13.40 a share. >> look, the virgin media, we're not giving this enough talk. >> i want to talk about the "faber report." >> i continue to believe that
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we're seeing stories where cash flow is big, and companies themselves feel they're undervalued. and that is a sense of, well, look, maybe the cloud is starting to lift, maybe there's value in europe, maybe there's value in tech. these were places where people six months ago felt there's no value in tech. and europe is falling apart. >> right. by the way, these talks, my sources began this summer. you've got to remember, deals take a long time to germinate. there tend to be a lot of ups and downs, and many of them don't make it to the finish line. and in this case, this had fallen apart a couple of times before it got to this point. it hasn't been announced yet. but again, at least what i'm hearing is it could be announced as soon as today. >> i've hearing a lot of chatter in the oil patch. possibility of some deals. possibility of companies there feeling undervalued. natural gas and oil and don't feel they're getting any credit in american resources. anna darko this morning,
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fabulous quarter. a lot of companies there. >> let's check in with bob pisani with what's moving this morning. >> we're here with a little crowd on diamond offshore, just opening at $73.60. about 3% here. they're opening to the down side. so everybody's debating whether the rally is over, of course. well, retail investors are putting money into the market. corporate buybacks are down, eight-month lows, according to trim tabs we noted this morning at cnbc.com. i was asked about it extensively yesterday, higher prices, normally would cause a company to pull back a little bit on its buyback. that's certainly not surprising. all the dividend increases in some buybacks back in november and december in anticipation of higher capital gains and other kinds of taxes, i'm not that surprised to hear about buybacks down a bit in the month of january. let's move on.
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the big that's going to happen this year, draghi, ecb meeting. a lot of people calling for rate cuts to help out on the euro. this is part of the currency argument going on. lowering rates seems unlikely at this point. the fact that there's a big debate about it, is that the euro strength is causing problems in europe. higher valuations last week for home builders. some trading two times book value. that's a big problem for the building people right now, if you trade them, fundamentals are good. barclays downgraded four of the big home builders on exactly that. the valuations have become stretched. we were talking about this two weeks ago, folks. barclays said new home price increases are unsustainable. some of them reporting 17% increases in their prices in the last quarter. that's an excellent number. but existing home prices not moving nearly as much. i agree with that, those are unsustainably high numbers. expect them to be 4%, 5%, 6%
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this year. let's move on here. the new york stock exchange, they reported their quarterly results. numbers were about in line with expectations. here's the bad news. stock volumes aren't increasing. i was hoping maybe january we'd see an increase. it's still not happening. we're seeing the worst volumes in five years and it's continuing into 2013, despite the great january that we had overall. this is a problem for all the stock exchanges that trade in common stock. the derivatives doing a little bit better, especially in europe. how about trading in nickels? how would you like to go back and do that again? the brokerage business would love to do it. the s.e.c. today is holding a hearing on decimalization. one of the things that people will be proposing is a pilot program for very low volume, low market capitalization stocks to trade at increments other than a
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penny, including possibly a nickel. that's been great, trading in pennies, it's allowed the brokeage costs to drop dramatically. but they say it's not profitable to coverage. some people arguing that if you trade in some increment other than a penny, it will attract more interest, more dollars, that will provide more analyst coverage. it's an interesting topic. i think a lot of people trading in the community would be in favor of it. but it's hard to get that toothpaste back in the jar when you're trading at pennies. back to you guys. >> bob, you remember dick grassam felt that it gave an advantage to the retail investor. i never disagree with dick when it came to retail investors. he cares passionately about them. let's hit the bonds and dollars. rick? >> thanks, jim. well, reverse of yesterday. yesterday we walked in, the nikkei was higher, and flip it
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around, nikkei lower, u.s. equities higher. rates going higher. the safe harbor rates up about four basis points on the 10. we're up about five basis points on a boon. looked like a beeline to 170. instead we're down in the low 160s. spain also reversal. we're in the 540s yesterday, we're in the 530s today. down about seven basis points. foreign exchange, some things just trend as your friend. if you look at the dollar/yen, you can see we're now in the 93 teens, open the chart to may of 2010. fresh 31-month highs, not to be outdone by the euro/yen. even the euro against the dollar virtually unchanged, just above 135, not true when you pair it up with the weak yen. also comeping 31-month fresh highs going back to may of 2010. jim cramer, back to you. >> thank you, rick. let's check out the latest news in energy in metals. sharon? >> jim, we're looking at oil
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prices climbing back up after yesterday's slide. and we're watching not only the oil market recovering here, but gasoline futures gaining ground as well. in fact, we're looking at gasoline futures again that are posting because of what we're seeing for the retail price, another gain that right now puts the retail price at the highest levels that we've seen for this time of year. we had an overnight increase of a penny to $3.53 a gallon for the national average. but as mark zandy points out, when we're talking about the economy, it is meaning a lot to consumers. every penny increase in the price of gasoline will cost consumers about $100 million a month. on top of the higher tax bills that a lot of consumers are facing right now, that's going to be a serious debt in their wallet. back to you. >> thanks very much, sharon epperson. did want to talk about a potentially huge deal. i'm not talking about dell, i'm talking about virgin media. it's a company that operates largely broadband over in the uk. you know, you may remember names
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like mtl, telewest. this is a result of a merger between them, and virgin mobile. branson isn't really involved, except that he kept 3% of the company. it's a good name. the companies confirmed they are in talks, not just virgin media, but a potential buyer in the form of liberty global. those are the global, let's call it cable assets of liberty run by john malone, controlled by john malone. they have huge cable sills tems in belgium, germany. in fact, they're number two in the world. about 18 million or so subscribers. >> he's smarter than cramer. >> oh, yes. >> that, by the way, is a compliment. you wouldn't even put a comparison with me with malone. >> how about this sumo guy? >> the ap chemistry.
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>> you have a degree from yale. >> i don't know. >> he's smarter. >> i'm going with malone. >> okay. >> let's talk about whether investors will, at this point, what the price will end up being. had the chance to talk to a couple of owners of vir yin media. their hope is they get something that starts with a five in terms of a deal. that is pure hope on their part. we'll see whether in fact that is proved right. i have no price parameters to share with you other than to say the person close to this potential deal did indicate it could be announced as early as today. that is, today, here in the u.s. we'll see. as early as possible. liberty global fairly levered up already at about 4, 4 1/2 times leverage. they could take it up. you could see a good deal of cash used in this deal, if not all cash. virgin media does have a lot of debt. but both companies have a lot of free cash flow. so you can lever up to a certain extent as well. question out there, would it be a challenge? 38% owned by newscorp.
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these guys more distributors. but there is certainly something to be thought about there in terms of a challenge to newscorp as well. a big deal, no doubt about it. there is also a net operating loss position at virgin media that could be attractive to the likes of john malone, likes to focus on tax advantages of any deal. it's not clear liberty profits can be shielded, but perhaps just virgin media. more to discuss about it, as we -- as i try to do some reporting here. but again, confirmation -- because they have to confirm overseas given the rules there once the leak started on this potential combination. they started talking in the summer. it fell apart. let's call it december. then apparently it's come back. >> boy, that stock, someone knew. now, my question to you, david, is, was cable ever hurt by europe? in other words, did the cash flows stay steady during the
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decline? because cable is amazing. >> and as a consumer product, given the problems in europe, they suffered not that much. now, virgin itself had some ups and downs. then they focused on broadband, on bringing that in. they've had good success reflected in what has been a very strong stock price prior to today's move up with their broadband product and the penetration they've been able to achieve. >> a double from may. >> yeah. >> double from may. pretty amazing. >> coming up, volatility on the rise in recent days. find out how you can keep your money safe. and later, facebook tumbling nearly 13% in just one week. is it a buying opportunity or a warning to stay away? as we head to break, take a look at this morning's early movers here on wall street. all stations come over to mission a for a final go.
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take a look at shares of dell.
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they're still halted at $13.40. this, of course, on the official news that michael dell is taking the company private in the largest lbo since the financial crisis. in terms of other impacts, jim, we're watching not too much of an impact on hewlett-packard at this point. although you say it could be a real opportunity for hewlett to gain on the back of this sort of disarray, or potential distraction. >> there's also money to be able to -- if meg whitman wants to reconfigure the company. when she does her strategic review, she can divide this company up, i believe. and now i feel that there's money, if there's a company that wants to, you know, someone wants to buy the business, you can borrow money. >> that's not the plan at hp at this point. >> no, not at all. >> i think they're hoping their quarterly earnings are going to show signs of a turn-around. we'll see. at hewlett-packard. and let's not forget, you've got
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the microsoft involvement here. i think that caught their attention at hewlett-packard. i'm fairly certain of that. wondering what that means for the relationship. there's no governance rights microsoft has here in a newly private dell, but it certainly will have contractual rights to say, make sure you use our software for every one of those things you -- >> remember those things we had? >> but you know, i want to just mention that oracle, ellison, what a competitor. mark hurd, making his mark on oracle. >> they're on the phone now. >> yeah. really? >> no, i'm asking you. >> i like her. acme packet, that acquisition yesterday gives them a one-stop-shop. dell was trying to offer a one-stop-shop. i think oracle will come in very impressively. >> that's for sure. >> tell you one thing, next time i need a loan, i'm calling microsoft, i'm telling you that.
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>> and skype, they got the $2 billion from silver lake. >> but he has a nokia phone with that microsoft software. >> that's true. >> it's very -- it's worth a great deal of money given its rarity. >> yes. put it on ebay. >> nokia is doing okay. i can't be too critical. >> as opposed to not okay, which was another time. >> a lot more "squawk on the street" straight ahead. coming up, these dogs of the dow may look adorable, but are they leading you in the right direction. jim cramer the stock trainer is here to help with 6 stocks in 60 seconds when "squawk on the street" returns. we create easy to use, powerful trading tools for all. look at these streaming charts! they're totally customizable and they let you visualize what might happen next. that's genius! strategies, chains, positions.
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here's a look at dell. halted at $13.40. we're hearing we might get some indications in the next few minutes, of course, when it starts to trade, we'll bring that to you. let's see what's coming up. >> reorganizing the next hour for sure. we'll have a dell shareholder on the program. we're also going to have a lawyer for stnd andard & poor's.
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and yum, what is exactly going on in china. that and more in the next hour of "squawk on the street." >> simon, let's get "six in sixty," 6 stocks in 60 with jim. don't forget, good news later this year. >> b of a. >> you know what, they said valuations too darned low. >> enterprise product partners. >> this is a deal, $54.50. i think this is a terrific opportunity. it's going to finish back here. >> nice quarter from este lauder. >> emerging market. elizabeth arden had a lot of people short this stock. great company. >> humana. >> i think that goldman saying the whole group is undervalued. >> big quarter from arm holdings. >> this is pumping up a lot of technology. arm holdings, people thought
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they would disappoint. they're more qualcomm than intel. >> sandy cutler tonight. >> exciting. sandy cutler put together this eaton cooper deal. i'll ask him about autos and trucks. i think it's an amazing deal. don't be confused. by the way, david pyott, a lot of money put into r & d. he has a great story, too. >> how much do you think we'll dance around 1,500 here? 14,000? >> i think that's exactly what's going to happen, carl. i think they went through a lot of the earnings season. i think there will be people who said it moved up too much. there will be people saying, well, look at europe again. my take is, this was a remarkable earning season so far. more importantly, it's been a great takeover season. that means the investment bankers are going to make a fortune. >> we'll see you tonight, jim, 6:00 and 11:00 eastern time.
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>> thank you. >> do not go away. great, everybody made it. we all work remotely so this is a big deal, our first full team gathering! i wanted to call on a few people. ashley, ashley marshall... here. since we're often all on the move, ashley suggested we use fedex office to hold packages for us. great job. [ applause ] thank you. and on a protocol note, i'd like to talk to tim hill about his tendency to use all caps in emails. [ shouting ] oh i'm sorry guys. ah sometimes the caps lock gets stuck on my keyboard. hey do you wanna get a drink later? [ male announcer ] hold packages at any fedex office location.
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delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪ welcome back to "squawk on the street." january institute for supply management, nonmanufacturing index, 55.2. that's basically arguably a
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couple of tenths stronger than expected. last month was already moved down to 55.7. so we see that it is a bit of a deterioration versus december. but a bit better than expectations. and running solidly above 50. and it represents, of course, nonmanufacturing service, which is the largest part of the economy. melissa lee, back to you. >> thank you, rick santelli. and what a recovery we're making in the markets in today's session compared to yesterday where the s&p 500 suffered its worst decline for the year. the s&p is up by 11 points now. 3/4 of a percent. dow jones industrial average up 111, or .8 of a percent. and nasdaq adding about 14 points right now. as for the leadership groups we're watching, financials certainly one of them. industrials making nice headway into today's session. ge, honeywell, eaton all up more than 1%.
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barclays downgraded the groups. >> thank you. shares of dell are open, in fact, up a little less than 1%, $13.36. this after the company finally announced, well, finally, after a few weeks of speculation, that it will be going private at $24.4 billion deal to be taken private by its founder, its ceo, michael dell. also teaming up with private equity firm of silver lake partners. getting a $2 billion, let's call it largely debt investment from microsoft. it is the largest leverage buyout since the 2008 financial crisis. the shareholders will receive $13.65 a share in cash for each of their shares. and again, you see where that stock is trading. it's going to be a number of months before this deal closes. antitrust reviews, of course, and potentially in china, i think there may be a payment of one, maybe two dividends along the way. we want to confirm that as well. $13.65, a price that the stock adjusted to over the last 24
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hours, after having traded well above that. speculation that perhaps there might be a bigger number at the end of this process. a process that has been, well, gone over many, many times, in terms of the special committee in this case, trying to do everything it possibly could to get the best price it can from its founder and ceo. and his partner silver lake. it's a process that is fraught with conflicts in many ways. it is a go shop provision. these have become automatic in these go private deals. lower the termination fee to $180 million during a 45-day period saying, hey, anybody want to take a look? but it's unclear anybody's going to take a look at all, given that they might have already wanted to come. then you've got michael dell, who is going with this deal. so do you really want to acquire dell without dell? that's just one of the many conflicts. but they will argue it's a 25% premium to the unaffected stock price of 47% price premium,
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prior to this deal. and the down side will be a lot lower as they try to fix what many would say, melissa, in some ways is a broken company, in terms of at least trying to deal with the modern age. >> it can't be broken if they believe taking it private they can extract more value from it. they must believe there's a way forward otherwise they wouldn't be spending the money. they obviously feel there's a way -- >> maybe hampered is better use of the word. perhaps broken is not necessarily challenged. >> sure. >> but the idea, of course, simon is, that under the -- no longer under the glare of being a public company with so many analysts focused on your results, you can take risks you might not otherwise be able to do, find ways to create value. don't forget, this will become a public company again or get bought by another company down the line. that's how they do it in private equity. >> on a split adjusted basis,
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went public at 9 cents. 9 cents a share, split adjusted. they split seven times. last one in '99, but went public in '88. >> at one point had a $100 billion market value. michael dell is going to be taking at least $700 million from funds outside. he sold stock along the way. this was $100 billion market value. you can bet he was able to sell shares at quite a price. he has $12 billion in msd capital. and they are -- >> it would be a huge acquisition. if you're taking it out at 24.4, and you think you can add value to it, who will be capable of buying it down the line, or do you split it? >> well, you most likely take it -- ipo it. but you never know. the key here is leverage. let's not forget, it's the $15 billion plus in debt put on this company. the equity check is fairly small. and so if you do see a return,
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it is magnified and multiplied many times over in terms of the equity being a lot less than the debt where they're buying it at five times current. >> let's get more on the dell buyout deal. this firm owns more than 1 million shares of dell. david, great to see you. >> nice to be here. >> in terms of what you do with your shares right now, walk me through, do you start selling your position at this point? >> we don't think so. we think this is the first step of a process. we don't think anything is going to come from the go-shop provision. we do believe, however, that there are going to be a number of class action suits challenging the price. the company has a pretty significant ownership by pretty smart value guys who think it's worth a whole lot more. we think generally what happens in these things is the ultimate price is going to be negotiated up with a sweetener. we think when all is said and done, the price probably gets to
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the 14 1/4 to 14.50 to 14.65 level. there's a great likelihood the deal gets done. we do think it gets done with the 14 handle. we would sit tight with the stock here. >> can you walk me through, david, how you get to $14 and change? what makes you believe there's going to be a sweetener and where does it come from? you're already going to lock in $13.65. you know, when the deal closes. why wouldn't you just -- or you can -- >> david, you need to have a shareholder vote go against you to have any sort of potential to get a higher price prior to close. maybe if you sue, you get some sort of minor collection after the deal closes at $13.65. i don't see how you get -- i don't understand your thinking here. >> well, i think if you look at a lot of these lbos, and david, you probably know better than i do, in a lot of the cases we looked at, you basically have a starting price and then there are the class actions, and to get the deal done, the company,
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the buyout group will pay a little bit more. we expect that to be the case here. if you look at the $13.65 price, based on 2013 earnings, they're paying about 8.25 in earnings, if you adjusted for cash, they're paying about six times earnings. when michael dell approached the company, the stock was selling at about 11 to 12.25. he'll make a case they're getting it at an exceptionally good price. we think probably in coming up with the 13.65, there was some wiggle room with the thought that they would have to pay a little bit more to get the final deal done. >> you know, the special committee has been negotiating with silver lake and mr. dell for quite some time. it's not clear to me that that's going to be the case. i do understand what your point is. sometimes after these deals, jay crew, for example, there were suits, lawsuits that took place and there was some recovery. but it wasn't that much. i would caution people here. david, your point, though, you simply think they're getting the company on the cheap? again, i want to come back why
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you believe that's the case, and whether you think there's any -- i mean, some would argue while there's no growth curve here for this company at all, so it should be going out, they're lucky to get it, to sell it today at 13.40. >> to a comment a little earlier, we don't believe dell is broken. they've done things to get to be the enterprise company. you won't see that significantly until 2015, 2016. we think they're going to return to a growth company. we don't believe the actual pc business is dead. but we do think that, you know, other areas like enterprise are going to do a much better job and are going to be a better business. if that's the case, we think that buying the business at anywhere from six to eight times earnings is an exceptionally good price. we think the public markets are not giving the company any credit for their future or having a business on an ongoing basis. we understand why michael dell
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would want to take it private. we think it's reasonable for him to get a good price in doing that, because he is taking on a lot of the risk that the public markets would not take on. but we think it's a question of, he's probably getting a little bit too good a price. you know, ultimately we do think he's going to have to pay a little bit more for it. >> david, if this works for him, i wonder if you think long term it sort of highlights what some would call the perverse experience of being a public company in this day and age. where you said, the markets don't give you time, they don't give you credit. they want month-to-month high frequency indicators. and they don't like you to invest long term. >> we think that's a necessary evil of being a public company. it's an imperfect world, but it's the best of all the alternatives. >> david, i'm curious, once you are eventually, whenever that may be out of dell, would you looking to invest in hewlett-packard? what's your view of this space, in general? >> we think the space ultimately
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is okay. we like dell. we haven't done well with the stock, but obviously we've done well in the last four or five months with the stock. we think dell is a good functioning company with a future. hewlett-packard, on a very, very long-term basis, should be okay. but they've got some real problems. they have a lot of self-inflicted wounds, a lot of management problems. we think the board has done a lot of negative things to the company. we're not ready to do anything on hewlett-packard. it is something that we monitor, but we do think that they've got a lot more problems to get through, where we thought dell, it was more a question of timing and changing the market perception. >> all right. david, thanks for your time. >> thanks a lot. >> david katz. before we go to break, we want to look at the dow heat map. a sea of green across the board. big reversal from yesterday's losses. in fact, we are maybe seven or eight points from recovery, from everything we lost yesterday, which was, of course, the first triple-digit decline of the year. >> the justice department filing
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civil charges overnight against standard & poor's, and it's all tied to bond ratings and the financial crisis. we'll address the doj suit right after the break, in a cnbc exclusive. we should note, tune in tomorrow, 11:30 a.m. eastern time, with ron johnson on the anniversary of the beginning of jcpenney's transformation. ♪ [ male announcer ] when we built the cadillac ats from the ground up to be the world's best sport sedan... ♪ ...people noticed. ♪
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the u.s. is suing s&p over its ratings. the department of justice filing a civil lawsuit yesterday against standard & poor's saying the firm intended to defraud investors by giving structured projects triple aerks ratings that they did not deserve. that from 2004 to 2007, quote, s&p knowingly and with the intent to defraud they executed a scheme to defraud investors in rnbs and cdo tranches by means of material, false and fraudulent pretenses, representations and promises and concealment of material facts. we're joined by the attorney for standard & poor's, floyd abrams. standard & poor's owned by mcgraw-hill. good to see you. >> good to be here. >> these seem to be fairly significant charges. i hold in my hand voluminous
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charges filed last night in los angeles court. sounds compelling. some perhaps would say it's been a long time in coming, but nonetheless, here it is. >> well, the first thing is there was no fraud. >> why not? >> because the ratings that were issued, which one can argue that in terms of how things worked out, but the ratings that were issued were believed by the people who issued them. and that's what the government has got to disprove. the government's got to show in this case not that a lot of people lost money because of their investments, the government has to show that standard & poor's literally disbelieved the tradings. and for all the bulk of what you're holding there, there is no proof, because it isn't so. and i guess the best way to think of this is that the ratings at issue here were virtually identical with those of not only other rating agencies, but with the views
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expressed by secretary paulson, by the entirety of the fed. we now have their transcripts. >> there were many who did not appreciate the risk of structured products such as cbos, and perhaps 30 of the ones cited in this complaint, that it is based on. nonetheless, s&p was paid by the issuer. this was a huge business for the company that increased its profit margins dramatically over the period in question. and there are e-mails and testimony from insiders that we heard previously, and we're seeing in the complaint, that at least do indicate there were a lot of people uncomfortable with what was going on at the company. >> two things. first, s&p made $13 million. that's it. that's what it was paid. not profit. >> just off of these -- >> off these -- well, the ones at issue in this case. >> of course, it was a much bigger business than that. >> it was a lot, but that's what the government is talking about. more broadly, yes, there was a
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lot of disagreement, at an extraordinarily volatile time in this country, about how bad, particularly the housing market was going to be. there were people at s & p who thought that they could go down 5%. the pessimists thought it would go down as much as 10%. it went down 40%. and s & p was not alone thinking that while it would go down, it would be nothing like what happened. that's what one learns from reading the pages from the fed, the same lack of knowledge. >> understood there were many people who did not appreciate that housing price declines would come anywhere near where they ended up. there were some who did. but you seem to be going with the defense that we've heard before, which is essentially, these were opinions, they might not have been good opinions, in fact, they were terrible, but nonetheless, that's all they were. fair to say? >> that's what they were. they were the opinions of s & p,
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reached at a committee level, cdo by cdo, and they were indeed identical opinions, if they had to be, with at least one other rating agency. because the cdos had three rating agencies on it. >> when the government says these were false representations on the part of s & p, they knew better and simply continued to do this because it was such a gravy train for them, notwithstanding $13 million in fees here, but larger case, what's your defense? >> the defense is that it's not true. the defense is that for all the internal debates, and for all the late night e-mails, the government read 20 million pages of e-mails, and you've seen the best that they can cull out of it is here, that for all of that, what was going on was an organization trying its best to come out with answers at a time
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when answers were very difficult to come by. and the fact that the answers they came out with, that the predictions they made, which ratings are, predictions about the future were identical to other rating agencies. and more important, to me, identical to the views of the great untainted opinionmakers in office in washington says a lot. >> there were many who failed to appreciate the significance of the decline in housing. but were there supplemeettlemen? >> i really can't go into the discussion. we had a lot of discussions with the government. i was at all of them. but the discussions are of a nature where i promised, and the government promised, confidentiality. i will say that from my perspective, what we were trying to do, unsuccessfully, was to
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persuade the government not to go ahead. we were arguing to them what i just said to you. at much greater length. the government was making its case, which is reflected in the document you have in front of you. we couldn't reach any agreement. >> there's also -- moody's is not involved. >> that's correct. >> so that has led some to people, or wonder at least, is this political payback for s & p's actions to downgrade u.s. debt? do you believe, do unsiders at s & p this was politically motivated? >> i don't think anyone knows. is it true that after the downgrade, the intensity of this investigation significantly increased? yeah, i'm sure the government would say that it had nothing to do with it. we don't know why -- >> but it did increase after the downgrade. >> yes. >> but you don't know why? >> how could i. >> are you surprised moody's -- >> nobody from the government has come to me and said, that's
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why we did it. >> are you surprised moody's is not involved here? >> i don't think moody's should be involved, and i don't think we should be charged. so i don't know the evidence that the government may think it has about moody's. certainly moody's and s & p were both criticized in a lot of the -- >> yes. >> but, you know, i'm not here to say anything about what happened to moody's. >> how long before we conceivably could go to trial here? >> well, there's a lot of things that have to happen in this case. i would say just based on other occasions, if there's a trial, because obviously we will try to persuade the judge, there's no basis for one, if there's a trial, i'd say a few years away. >> you're a first amendment, or noted as an expert on the first amendment, a first amendment attorney. that has been a defense in other
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civil cases for the rating agencies. but in this case the government is using forea. i don't want to go into the great details of that, but suffice it to say the burden of proof seems to be lower. and that the first amendment defense is not going to help this time. >> we're not making a first amendment defense in this case. we never, if somebody says, not that the ratings were not so good, somebody's prepared to say, what the government's saying here, you thought something else from what you said, then the first amendment is not a defense, and we're not arguing that it is. >> mr. abrams, thank you for your time. >> thank you. good to be here. >> floyd abrams. simon, back to you. >> david, thank you very much. still ahead on the program, more on the market rebound. the worst losses yesterday for the year. a lot more reaction for the big news of dell.
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more problem for boeing, the engineers voting whether to go on strike. boeing has officially asked for faa for permission to conduct test flights of the 787. phil? >> if boeing with get the faa to say, listen, you can at least do some test flights, they believe this would be critical to getting a better idea of how to resolve this situation involving the lithium ion batteries. they have in fact asked the faa to lift the grounding. this would only be for boeing airplanes. the company owns. not for the ones that are already delivered to airlines. and it would be for test flights only. they need to have that grounding lifted in order to test some battery safety issues. they think they can believe only test in-flight. in japan today, they said the
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ana battery, involved in the second incident, it had thermal runaway. the reason that was important, it was also a thermal runaway detected in the incident in boston. the jtsb focusing the 787 investigation now on electrical could po nents. as you look at shares of gs yuasa, they said they have yet to turn a profit with their lithium ion battery business. clearly, they're under a lot of scrutiny right now. talking about stocks, look at shares of boeing. talk about a rebound. these guys, and we're going back to the 17th. that's when the grounding took effect. they were under some pressure. they're now trading above the level where they were at when the grounding took place. as we mentioned at the top there, you see at the bottom mentioned that the boeing engineers union, they have received their ballot to vote on
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the contract offer, 23,000 engineers will be voting. by the way, the union leadership has recommended they reject that offer. as we talked about it in the past, carl, you want those union -- the engineers working on the 787 issue. they've got a couple of programs in development. they do not want to see those guys go out on strike. so that's a key vote to watch over the next couple of weeks. >> all right. thank you very much, phil le bea. we have breaking news here. we want to take you to shares of yum brands just hitting a fresh 52-week low. these headlines from the conference call going on right now. dow jones reporting the ceo david novak saying we totally underestimated the impact of the chicken issues in china. a fresh 52-week low on shares of yum. >> according to the call, they're going to start issuing monthly guidance, which is, i mean, in terms of retailers and restaurants, something that's been trending the opposite direction, as companies want to give us less frequent data. this would be interesting. >> in order that people don't write them off for the next
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year. they will say we're a growth stock for a decade, we will come back. very interesting. >> yeah. want to go back to headquarters, check in with josh lipton in the search space. >> melissa, investors pounding the cell button on buy. china's lanchest search engine reporting slowest profit growth since 2009. two problems here, competition is increasing and users transitioning to mobile search. baidu releasing its own mobile browser. baidu warned it could take a couple years to monetize mobile operations. the street is reacting this morning. raymond james cut to market perform. barclays cut the price target to $108. carl, back to you. >> josh, thanks for that. when we come back, a lot more on the latest out of yum brands right after the break. years. years. but your erectile dysfunction - you know,that could be a question of blood flow. cialis tadalafil for daily use helps you be ready anytime the moment's right.
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a powerful rebound on the stock market after yesterday's big losses. let's get some analysis. martin is chief investment strategist with johnny montgomery stock. and vice president of research joins us with shaffer's investment research. let me kick off with you, todd. when you have a rebound like this, as we're seeing today after yesterday's falls, what does that tell you about the strength of the market? >> oh, it tells us we have tremendous strength in the market. what we've been doing over the past couple of weeks is comparing the first quarter of 2012 to the current first
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quarter in terms of this momentum market, low volatility uptrend. one of the things we were saying in the fourth quarter, in fact, was the fourth quarter 2012 was like the fourth quarter 2011. we had strong price action in the market. amid huge interest. we're anticipating that, hey, this momentum could continue, and it could continue on the strength of the short call ring. if you compare it to a baseball game, if you compare the high levels of last year, and the low levels of last year, we're about midway through that baseball game. about the fifth inning. so i think what's occurring is, you get these pullbacks, the shorts say, okay, that's my opportunity to perhaps cover my position. and that lends some support to the market. >> we should note that we're seeing at the bottom of the screen, report by the ap that the president is to ask for short-term budget in order to put off the automatic cuts.
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mark, that would appear to be a positive signal for the market. because the sequester was an issue, and indeed goldman's on friday was downgrading their estimates for growth for the year. i think half of 1% in light of what they still thought would be quite severe cuts. >> well, i agree, simon. we already know that because of payroll tax holidays eatio and the additional taxes applied to households, that will shave about 1.1% off the gdp. if we went into the sequester and allowed the $110 billion to be taken out of the economy as was its face value, that would be about another .7 of 1%. collectively about a 1.8% hit the gdp on an annualized basis. that leaves little margin of safety. so hopefully some effort to perhaps trim that sequester amount to something a little bit more reasonable. at least back end loaded, will enable the economy to muster some momentum.
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>> yet, mark, $77 billion of new cash, according to trim tabs, came into the market in january. would you be a contrarian with that or would you say strength? >> i think it's a little too soon to call it the great rotation that everybody's been anticipating. i think it's encouraging. i wouldn't necessarily be prepared to take a contrarian position on that, to say that now that means all the retail money has flocked in like lemmings equity prices after they already moved up substantially. i think we have a long way to go. i would like to see three, four, fives months, and money not only coming into equity mutual funds, not just sidelined due to 401(k) contributions, but actual redemptions that would be more indicative of a sustainable pattern. i'm not yet ready to make that contrarian call, but it's certainly encouraging. >> todd, where do you see the markets ultimately this year? i talked to probably three chief
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u.s. equities strategists in the past 24 hours who say the new highs in the s&p 500 will be hit in 2013. and they're forecasting at least 1,600. >> yes, when we -- coming into the year, we were looking for anywhere between a 15% and 20% rally in the s&p 500. and i think that's probably a little more bullish than your average strategist. we think coming on the heels of -- even though we've had the strong price action, as mark was just saying, if you put these inflows from the retail crowd in the complex, we had hundreds of billions of dollars of outflows. one month of inflows. there's a lot of support that can come from that crowd. you also had the hedge funds that really aren't in this market. and they're trailing year after year. and i think as this market, if it does approach new highs,
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that's going to generate some new types of thinking in terms of where people put their cash. and again, that can be very supportive of the market in the months to come. 3%, 5%, 7% corrections along the way, i think that will occur. >> you know, todd, steve lewis at monument securities is basically asking today whether in europe, mario draghi is playing a confidence strike on everybody. and he can't actually come in to intervene in the markets in order to support the bond markets. do you bother watching european news anymore or is it dead to you? does it not matter to the european rally? >> yeah, you know, that's a great question, simon. and that's something i was -- we were thinking in the back of our minds, back late last year how europe is in a way disappeared from the headlines. it seems the past three, four years now, early in the first quarter, europe always comes back in the picture. it was something that was on our minds in terms of what -- >> so do you want -- >> the ball will drop. >> but do you watch --
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>> if you think about it, i think there has been a disconnect between the u.s. equity markets and europe throughout the last 12 or 18 months. the u.s. market will respond to europe. do we watch it? yes, we do. i think there's some noise, if you will, from day to day. but overall, there has been a disconnect. the u.s. market has been outperforming. and europe has acted as a drag for certain. but i think the u.s. economy is much bigger, and the u.s. economy is much more relevant. >> i'm not sure actually the european equities have outperformed. i'm not totally sure about that, todd. mark, just before we let you go, do we worry about europe or basically take it off the agenda? >> no, i'm not prepared to take it off the agenda at all. i think it's been remarkably quiet on that front. but the gain was clearly last july when mario draghi said whatever it takes. recently he's said positive contagion is occurring across the euro area. we're bullish on european
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equities, but not taking our eye off the ball. >> guys, thank you very much for your time. martin there, and todd. >> thank you. >> let's get to shares of yum brands. shares trading sharply lower this morning. fourth-quarter earnings did beat by a penny, but man, the same-store sales in china, fastest growing market, down 6%. fresh off the conference call. a neutral lowered price target from 69 to 63. david, welcome back. >> good morning. >> you had outlined prior to the quarter a spectrum of scenarios. you say this sort of skews to the worst case. >> it does. certainly with this company, it has a proud heritage of 10% eps growth. the first year in 12 years they're not going to hit 10% plus. half the business in profit turns, or almost half, is the china business. obviously they got caught with serious operating deleverage from this food safety and public relations issue. >> so you already had a neutral
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on them. if this year really is a wash, at what point do you get more aggressive, if in fact that's where you're headed? >> the way you get more aggressive is you field through the signals from that marketplace, about the chinese fast food market in particular, and the consumers' reaction to chicken. if you're seeing stabilizing results from mcdonald's, from kfc china, you can start to plan out when the recovery will happen. right now, the company is forecasting that comps will get positive in the fourth quarter. we don't know if that's going to happen yet. but as we start to get a baseline, we get more comfort we're going to have a sharp rebound in 2014, as the markets no doubt is going to tank. >> novak's out saying, we totally underestimated the impact. is there a lesson in credibility here, david? >> well, you know, what's wild about this whole situation is the chinese press really ran with something.
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there was an investigation by the shanghai fda into one or two suppliers, and their supply to yum, that represented no more than a couple percent of their supply. so clearly the consumer reaction was severe. talking 25% declines in the first quarter same-store sales, that surprise decline is causing massive deleverage. maybe upwards of 30% to 50% profit declines in the first half of this year. that's what's undone this whole thing. if they restore the trust and they'll launch a campaign after the chinese new year, they could come back with a sharp recovery in 2014. but we'll see. >> david, is this an opportunity for a player like mcdonald's, and granted mcdonald's is also part of this s fda investigation, but they have much smaller chicken sales than kfc in china, so could this be an opportunity for the burger chain to actually gain some share? >> not really. mcdonald's, first of all,
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mcdonald's china is about 23% of mcdonald's overall. so it's not meaningful for the stock. the third biggest chain there, this could be a positive for them. since they don't have as much exposure in this area, but for mcdonald's, they sell a lot of chicken. this is hurting their comps at present. they said things deteriorated right into january last time we heard from mcdonald's. >> but david, wasn't it always going to deteriorate in the end? the financial "times" points out today that the cash returns they get on a new restaurant can reach 50% in year one. >> yeah. >> that isn't sustainable, is it? >> for yum, a lot of those returns were even higher than that in the tier three and below markets. some of the newer cities, yum doesn't even have competition. it has the supply chain, and the real estate identification teams to get into the smaller markets. the competition is scarce. the tier one markets, the returns are deteriorating. that's why they're slowing down that development there. but yum brands has a very deep investment capital opportunity
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if they can get its brand back on track. >> david, thanks to speak with you. >> thank you. still ahead, much more of the dell buyout news. and the doj lawsuit.ate in me? with fidelity's new options platform, we've completely integrated every step of the process, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades n an account. to grow, we have to boost our social media visibility.
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welcome back to "squawk on the street." i'm john harwood with breaking news at the white house. in a little more than two hours, president obama is going to come out and propose a short-term deferral of the so-called budget sequester. that is due to take effect on march the 1st with indiscriminate cuts in defense. he needs more time given the congressional budget process from the fiscal cliff, in order to put off the sequester, and come up with a ten-year plan. he's going to propose for several months tens of billions of dollars in both new revenue and spending cuts. this is going to be greeted skeptically from republican leaders. i just spoke with the spokesman
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for mr. mcconnell, the senate republican leader, who said we would love to see the president's cuts. we'll see if he can reach an agreement to put off that sequester. so far they were able to put off the debt limit which delayed some of the threat to the american economy. this is another attempt to do that. of course, the president's focus largely on immigration today, he's got meetings with the ceos of both yahoo, marissa meier, blankfe blankfein, and trying to focus on that topic. the budget is the most economic back drop at the white house. we'll see whether the president can make a deal with republicans. >> between that statement and the cbo today, going to be an active afternoon, john. thank you so much. john harwood in washington. when we come back, rick santelli tackling s&p and doj. we'll talk to rick in just a moment. [ indistinct shouting ]
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welcome back to "squawk on the street." in the last two weeks i have found it very fascinating that the peso and the mexican economy
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have been one of the major topics by many of our guests. mexico, they like it from an investment standpoint. now let me read you something that was said by mexican central bacentral -- as a result of massive capital flows to some emerging market economies and some strong performing advanced economies. what mr. carstens is worried about is that the global liquid si, of japan and the u.s., and when those flows come in, on flight to investor investing, it swamps their marks. and what makes it worse is that after things start to get better in mr. carstens' piece, he says he thinks it's a decade ago, but
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it's going to be the opposite. it's very difficult for some of these economies like mexico to deal with this. this is an asterisk on your investment. timing is everything and the ebbing and flowing of liquidity is a big issue, especially for menti mexico. yesterday, i was getting a lot of tweets and e-mails, i believe rating agencies should be gone after if they had any role in the credit crisis, anybody who had a role in the credit crisis should be a target. the water cooler talk is, is there a political issue there, if it walks like a duck and quacks like a duck, a lot of this talk started to get some real saturation right around the time when we lost our aaa credit
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rating. did they have intent to defraud or lead investors down the wrong track, what it was ben bernanke, or tim geithner, you know, when many of these banks were bailed by the government, there's a cynical side to everything when you deal with the government. do they now go on capitol hill, some of these major banks can you trust their opinions? why didn't moody downgrade the u.s. from the aaa rating. according to cnbc portfolio tracking, warren buffett and hathaway own a little bit more than 13% of moodies. should they all be questioned? if it walks like a duck and quacks like a duck. >> i know a lot of people on
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this floor agree with you. coming up next, dow's triple digit come back with the one and only art cash. all stations come over to mission a for a final go. this is for real this time. step seven point two one two. verify and lock. command is locked. five seconds. three, two, one. standing by for capture. the most innovative software on the planet... dragon is captured. is connecting today's leading companies to places beyond it. siemens. answers.
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markets here, the dow,
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almost getting back what it lost yesterday, 13,999. art cash joins us now. 1510 is right where we are, you say it's an important level? >> it could be, you shouldn't anticipate the napkins b thank you chart is building here, if they pause or hold at 1510 and then have a subsequent pullback, you could be setting up for a very short-term head and shoulders. a simple five-day but a very pronounced one. the thing for the viewers to watch for, do they stop around 1515? is that about as high as they get? the end result would be about 1495. if we didn't break that, that might give the incentive back to the bears. >> the concerns about europe that we had yesterday were really just an excuse to pull back a little bit.
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if they weren't true reasons for concern. or are they? are they going to rear their ugly head again? >> but europe has done a little bit better today. we're still linked together. you can say that it was an execution, certainly we were overbought, we could use a reason. it all happened in kind of a vacuum, the only event was europe. and we'll see where that's going. >> but are we saying now the markets are much stronger than they have been for the last two years to weather the storm that night come out of europe, or are they simply complacent. >> i have haired theard that th. when drahee came out and offered his democratramatic proposals, really was like a magic wand. it just stopped everything. >> it's a confidence trick, isn't it? you can actually go in and buy bonds. it's a confidence trick. >> now we're going to have to address things like real elections and what's going to
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happen. and i'm fascinating, i'm a student of american politics which is pretty zane any at best, but when you look at italian politics, one of the things yesterday was that berlusconi was moving ahead in the polls and one of the reasons is he owns a soccer team and they were going to bid for one of the most popular players to come back to italy. and he said, and the london economists know that that they could provide him with 300,000 or 400,000 votes. >> we don't know what's going to m happen, that's the scary thing. >> melissa, what's coming up today. >> disney, zinga and-europe will be the rally killer. that's also tonight at 5:00. >> here's what you missed earlier this morning.
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>> welcome to hour three of "squawk on the street." here's what's happening so far. >> you grow 7% a year, that means you double your money every 10 years, that means if the stock market is 1,400 now, it could be 28,000 in 10 years and 50,000 in 20 years. >> we're dealing in the virgin media deals, these are big deals and i think they put a floor on the market. >> 1365 in cash. >> $24.4 billion, 37% premium and the release, acquired by emichael dell. >> it's going to be months, whether it's four months, five months, i think they need anti- trust approval. this is going to take a while before it closes.
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>> the emerging market opens. >> we think that the public markets are not giving the company any credit for their future or for having a business on an ongoing basis. so we understand why michael dell would want to take it private. >> the ratings that were issued, which one can argue about in terms of how things worked out, but the ratings that were issued were believed by the people who issued them. and that's what the government has got to disprove. welcome to the third hour of "squawk on the street," we're life this morning with some more breaking news, recapping the news on dell going private in a $24.4 billion leveraged buyout, the biggest since the financial crisis. david, what is going on? >> the key will certainly be what is the strategy for this company.
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i'm hearing the anti- trust review will include china. but four or five months, whatever it may be, dell will be a private company. interesting, some of its competitors already taking shots at it, including as you might expect, hewlett packard. dell haslem a very tough road ahead. the company faces an extended period of uncertainty wi. >> the fact is actually when it talked about debt load here, from i'm hearing, will only be def rajjed to 2.5 times. it expects to -- investing in parts of its business. clearly, chevrolet and michael
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dell do not believe that the cp is going away in any real way, shape or form. but they do believe they can invest more to grow. and they obviously believe that as a private company and we often hear this from those who do these deals, that there are simply going to be larger degrees of freedom to take risks, to increase investment that might other buys be looked at askance by wall street which is obviously focused on the bottom line. we'll see, carl, 1365 is the number, they are expecting the february strike suits or lawsuits, but whether that amounts to anything is very unclear. the special committee went back and forth and back and forth many, many times to try to get a price that they could bring to shareholders and succeed with. s the it is a significant premium.
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michael dell will be the majority owner of dell. let's not forget that, partners with silver lake, but nonetheless, he will be the guy in charge. >> stock was -- did have a 14 handle as recently as friday. the 52-week high is 1836. the guys are coming out saying this is not the end-all, be all price, do they have a point? >> often when you do see a 52 week high, the buyout group being silver lake and dell are simply going to make the argument, the unaffected stock price will be -- we're paying a people dwrremium to cash. we're paying $1.30 for every dollar in cash. this is a very uncertain time for this company, this uncertainty. we want to continue to take on this risk, do you, mr. shareholder want to continue to
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take that risk. they have another 35 days to look for a partner. >> at least we have the news out, that's one problem solved, david, thanks a lot. david faber. the market meantime making a come back after yesterday's triple digit loss, earlier on "squawk" we heard from ron barron make some bullish calls for the market. >> i'm expecting 17% average growth for an extended period of time since we're below where stocks -- if you go 7% a year, that means you double your money every ten years, that means if the stock market 14,000 now, it could be 48,000 in 20 years.
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>> we'll set aside the 50,000 dow for you, you say we may flirt around 1,400 for the rest of the years. >> remember last year, when we hit 13,000 in february, it was up and down, up and down. we have got european -- earnings expectations still too high for the second half of this year, and finally this is a big milestone that takes us back to the peak in october 2007. if you've got a long-term horizon, you can buy it. >> we keep hearing about pension funds who want to increase their exposure, we keep hearing about companies upping their guidance. why is jeff wrong if in fact he is? >> well, some of the facts you just mentioned, but i also think that, i mean investors have been through a whole lot the past couple of years have been very -- a whole lot of
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macroeconomic shocks. i think that this year if there's a lack of those shocks, we'll get some confidence back in the investor class. you see a lot more money coming in from institutions as a gentleman on your show earlier said the hedge fund communities are a little bit underweight stocks rights now. >> you mentioned some of those external shocks, this is an interesting week in which europe has thrown us a couple of inside pitches. do you think we might be immune for any other surprises they might have for this year? >> europe? i think europe is still in a recession. but the sentiment's improving in europe, which is good. i think we have seen the worst that we're going to see in terms of the debt crisis. they kicked the can down the road, but it's better down the road than to go all the way over
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the cliff. europe's going to be a problem, but not as big problem as everyone feared last year. >> i guess we know that europe has kind of resolved its financial crisis, the problem is it's morphed into an economic one. we have now got france bordering on a recession. and the core is being affected by this economic malaismalaise, that's going to crop up through the rest of the year. >> we have equity sentiment on credit desks around the world. if we do start seeing large buyouts, if some of these funds do stay at 14,000, 1,500, we got core logic house prices today. fastest rate since may. zubl the economy shows no signs of speeding up this year? >> i think the economy, i think business spending is going to come back, but we know housing
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is doing well, and it's one of the reasons why you've got two sectors doing decently with regard to earnings this season. we're still kind of bumping along the bottom here, 1%, 2% economic growth that might linger through the rest of the year. from a credit perspective, maybe you want to worry about companies releveraging and using cash to invest in stocks. you'll see ups and downs. what gets us to the next level, i think it will be a while until we get there. >> guys, it's definitely a pivot point we're at. jeff and ted. >> straight ahead, the u.s. attorney general set to announce it's suit over s&p. that is a live shot of jugs sti in washington, d.c. we'll take that live when it hatched. and rick santelli has voiced his opinion on s&p.
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>> we're going to talk to richard far, our managing director, and we're going to talk to him about population growth measured against job growth. and what's going on in europe. all at the bottom of the hour and i am positive you're going to be there. (announcer) at scottrade, our clients trade and invest exactly how they want. with scottrade's online banking, i get one view of my bank and brokerage accounts with one login... to easily move my money when i need to. plus, when i call my local scottrade office, i can talk to someone who knows how i trade. because i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade. awarded five-stars from smartmoney magazine.
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things are going to get
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awfully difficult here at cnbc. attorneys general will announce the justice department's suit against standard & poors momentarily. david and i are here at post nine. already david we're reading about things like analyst d in this complaint and these mock videos they made of talking heads song "burning down the house." they're going to have to start knocking down some of these anecdotal pieces of evidence. >> if there's a trial, it's likely to be years from now. years. and from are mr. abrams point, he basically said, listen, it's up to the government to prove that we knowingly provided false opinions. in other words they need evidence that says we knew it was a and we said it was b. he claims of course they don't have that evidence at all and interestingly in the past, they have, as we watch them coming to the podium. they have used the first
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amendment defense, have the rating agencies, they're not going to go that route, said mr. abrams. i know the attorney who's been working for them for over fife years and knows a lot about the case so far. >> you poeszed the question, is this political pay back and we don't know. which is i think prodding some people to ask even more questions today. here's the attorney general, eric holder. >> thank you for being here, today i'm joined by the associate attorney general, the deputy attorney general for the civil division. united states attorney for the central district of california los angeles and attorneys general from six states as well as from the district of columbia in announcing the latest steps forward in our ongoing efforts to protect the american people from financial fraud, to hold accountable those who violate our laws and who abuse the
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opini public confidence. yesterday to the justice department filed a civil lawsuit against standard & poors finance services along with mcgraw hill stating that the credit rating agent engaged in a scheme to fraud investors. we allege that by knowingly issuine ing iing inflated credi reporting agencies which misrepresented their credit worthiness and understated their risks, s&p misled investors, including many federally insured financial institutions causing them to lose billions of dollars. in addition, we allege that s&p falsely claimed that it's ratings were independent, that they were objective and there they were not influenced the company relationship to rate the
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securities in question. when in reality, the ratings were affected by significant conflicts in interest and the s&p was -- now yesterday's action was brought under the financial institution reform and recovery and enforcement act of 1989 which allows the justice department to seek civil penalties equal to the losses suffered by federally insured financial institutions. to date we have identified more than $5 billion in such losses, resulting in ceos that were rated by s&p during march of 2007. during this period, every single mortgage backed ceo not only underperformed, but failed. put simply, this alleged conduct is egregious and it goes to the very heart of the recent
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financial crisis. our investigation into this matter began in november of 2009. it showed that as early as 2003, analysts within s&p raised concerns about the accuracy of the company's rating system as well as the underlying methodology. s&p executives allegedly ignored these warnings and between 2004 and 2007, concealed facts, made false representations too investors and financial institutions and took other steps to manipulate criteria. even in 2007, when s&p's internal data showed a severe deterioration in the companies that it rated. ignoring their own analyst's
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performance objectives showing the rating on that collateral would not hold. the administration's ongoing efforts to investigate as well as to punish the conduct that is globed to have contributed to the worst economic crisis in recent history. it's just the latest example of the critical work that the president's financial fraud task force. the residential mortgage backed securities fraud working group. the mortgage fraud working group and the securities and commodities fraud working group. members that played key roles in the action that we are announcing today. >> the attorney general recapping an investigation this dates back years, november of 2009 he says it began. he said that as soon as 2004,
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analysts were making warnings. >> this took place in 2007, we're talking about 30 or so cdos during that period. i have talked about it so have many others. these are companies that were part of the mortgage scheme, but they should have known better. whether you can prove that in a court of law, the deterioration of credit quality, the underlying deterioration in the housing stock of the country. to be able to prove that that fraud was underlying -- federal action against one of the rating a gt cities, civil of course in nature and the burden of prove
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will be lower, which should make it easier to prove their case if and when they finally get to court. >> by the way, the holder press conference p continues to stream life on cnbc.com. not the first time in the past few years we have heard about anecdotes about one financial annal. >> the reason that this is different from a criminal action where they would have to prove it beyond a reasonable doubt, compare it to the analysts lawsuits that eliot spitzer announced back in 2010, after wall street analysts were misrepresenting the securities in order to gain investment banking business. that's the allegation here. it certainly does not matter if it ever does get to a court and you can expect that s&p is not going to be the last company likely named in this type of
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action, they need to force some sort of a settlement. clearly s&p is fighting, they're not willing to settle yet. they haven't gotten terms they are willing to swallow. david was talking about a billion dollar pound of flesh that the government wanted to collect. what they're look at is if this whole rating system needs to be reformed and potentially what came out of the analysts crisis which could be a global settlement. >> did it feel to you, david, like it was the billion dollars, the admission of guilt? why so reluctant to reach a deal? >> mcgraw hill -- the admission of guilt could conceivably and scott knows more about this than i do, open them up to other
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potential lawsuits in a more significant way, they were un g unwilling to entertainfully of those settlements. what the quote was ten figures plus, number, meaning at least over a million dollars. >> floyd abrams says that the probe intensified after the downgrade. i mean there's no need to go into the other ratings agencies that are not being targeted here and that didn't downgrade the u.s. is there a way to look more clearly into that black box? >> if you look back at when all of this came up. in 2008, a big congressional hearing when henry waxman was the chair of the oversight committee, it wasn't just s&p that was facing that congressional panel. the analysts at s&p are talking about losing business to moody's
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because moody's had different standards. if this is some sort of pay back for the downgrade, that strikes me a little bit odd when you're talking about career prosecutors. but that's open to debate. >> finally, david, i wonder, do you think, fast forward five years, this business model will exist? this business model of theirs? >> this that's a very good question. i would have already thought it would not exist. there were charters written into certain investment institutions that can only buy rated securities and that gave them enormous power. the issuer pays model is still in effect. it is expected to change, but i would have thought it would have changed three years ago. >> thank you very much scott and david. let's get to our capital markets
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op-ed. ga gary -- let me just say this, this is civil litigation as you guys pointed out. there's a lot of people that are still waiting for that criminal litigation and it looks like they'll continue to wait because the department of justice still has not put any criminal cases from 2008 and 2009. there's a lot of people waiting for that. my role here is not to talk about what's happening today, but to think about what happens six months from now. that's what we always try to do every day. yesterday there was a wall street journal story, and it was very timely because low rates force companies to pour cash into pensions. you saw ford motor had to contribute $5 million to their pensions verizon had to put $1.7
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billion in. they basically showed us the amazing numbers here, and it was actually very startling to me. you've got basically a $400 billion pension hole which is the same as it was in 2008, the discount rate has interest rates at the fed has basically pushed rates to where they are. the issue here is that assets are not growing as fasts as liabilities but the liabilities on these pension plans are determined by the low interest lately. what does that mean? it means the following, this is something that nobody cares about right now. some day somebody cares about it and this is something that some day one's going to care about, they just don't right now. speaking of numbers, i also want to do a little bit of a right turn. you probably saw earnings reported out of switzerland. they reported they've got 7,059
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wealth advisors. when i saw the numbers, i thought let me take a look at it. they actually have revenues per advisor of $1 million. that does not mean that every one of those 7,000 advisors managing $1 million. they did get rid of a lot of low producing advisors, but if you wanted to think about where we are, these would be the equitqu markets coming up. >> that is a heck of a comp ratio, gary. thank you for that. bell is about to sound across europe, we'll get the close over there. they have had some data of their own to share with us. we'll get the details on that, impact on us this afternoon, with the dow up 114. don't go away. i'm lorenzo. i work for 47 different companies.
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the european markets are closing now. you timeded that well, simon hobbs. >> it seems interesting as art cash said in the program within the last hour or so. the last 48 hours have really taught us how linked we still have between the european markets and the u.s. markets. europe put a bid on the u.s.
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futures when it bounced back earlier in the session. let's look at some of the issues with that general rebound. obviously there's a lot of about what might happen, the quilt to come past or time-warner cable. stock moving in response to that, as you can see on the london quote. we're at the height of the earn ings season too with europe. the main movers on a very busy corporate day in europe. the biggest telecom operator in the netherlands, that stock down. arm holdings makes some of the chips that go into ipod and iphones. what we're really watching is
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the politics. today we rebounded. as you can see on the bond markets have rebounded, so the yields have come low which is exactly what you want to see. the italian election which is 2 1/2 years away is that everything will continue as we thought, but there is that tail risk, that berlusconi from the right comes in and upsets the apple cart. the problem that we have is that the opinion polls won't be published after saturday. you might see follvolatility wi the -- a rebound on the bonds there, still watching the corruption scandal there. we have actually come now a full half a percent higher. just want to mention that the
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french president was at the european parliament today and we called medium term targets on the euro. it won't get any traction, but the level -- just moving forward, carl, be aware that the political split between france and germany, there is an economic split. the german company is improving, the french economy is doing exactly the opposite. so those two great drivers of the euro zone are moving quite clearly now in different directions. >> amazing to watch the euro and the yen just split ways here. >> simon hobbs. let's get a check on energy as well. sharon epperson, the percentage
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of income that americans are spending on gasoline. 4%, that's a significant percent,ensly when we're looking at the higher tax bills that people have to pay. the oil gains we're seeing they're really being led higher by refines fuel, by gasoline and we are looking at prices as the pump that have climbed as well. up 17 cents on the week. it prices continue to rise averaging about 3.60 dlr 0 ther consumer s know they need to mae some changes here. according to a recent survey, americans are ready to make some changes. 62% of them think we are going to see higher gas prices in the next 30 days, many say they're going to get a hybrid car for their next vehicle and 17% say
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they're going to pay cash rather than use their credit or debit card to save an extra 5 cents at the pump. >> it's a slow creep, back to 14% here. >> we're close, i know nobody's paying attention because the excitement was all last week, anticipating that we were going to do it. but we're moving in that direction, slowly but surely, 3-1. take a look at your major sectors here, but this doesn't tell you terribly much about what's going on. when you have consumer staples, and health care and technology it's good news overall. getting close, that's sort of my theme right now, once you're at 14,000, the old historic highs on the die, 14,164 we're talking
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165 points away. the s&p 500, a little bit further away, we're a good 50 points away on the s&p 500. how about an earnings estimate. a lot of the retailers haven't reported. the retailers have usually a month off of most of the other companies, so almost 60% of the s&p 500 reporting. earnings is good, 5.8%. revenue growth 3.3. why am i saying it's good? last quarter it was about 2% on earnings growth. revenue growth was 0 last quarter. this is again supporting the central thesis that earnings troughed last quarter of 2012, and now it's -- mcgraw hill and what was going on and s&p. let me just point out a couple of things about it. there are a lot of lawsuits that have already been filed against
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them. there were lawsuits regarding fraud that are still ongoing, there was underlying liability lawsuits, my understanding is that they were mostly withdrawn or dismissed. there were class-action suits also withdrawn or dismissed. so far they have successfully managed a lot of this litigation risk. there's noking gun, there's a lot of embarrassing e-mails, but nobody's got a clear indication of whether they actually broke the law. >> let's get to rick santelli in chicago. rick? >> thanks, carl, before we get to our guest, i would like to read something that richard favre wrote about a month ago. payroll's lag population growth for all but onemore in 2012. including the january census
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adjustment, jobs trail population growth by 1.9 million. and that's in 2012. welcome risk. >> how are you, rick, thanks for having me on. >> thank you. i don't know if the benchmark provisions were received after the last number of last week changed that, but it really is a rather fascinating boggie to hook the jobs and payrolls numbers too. i keep saying we're behaving a lot like economists. your research indicates quite simply that they are not okay. would you like to expound on that. >> we have the numbers that are slightly different than what you have stated. it's 1.6 million jobs created last year, versus $3.5 million in population. what does that mean? there's a concept called potential gdp, it's essentially how much can the economy grow if
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mainly jobs are keeping up with population growth and that view is, roughly, if jobs keep up with population growth, the economy will grow about 2%. but we're not doing that, and lo and behold, gdp comes outs and it's 1.7%. we created 1.6 million jobs, but we're simply not keeping up with the population growth. >> thanks, richard. another topic that's very hot today, that's of course the department of justice going after s&p. a few minutes ago i was e-mailing with shaun eagan of eagan jones, eagan jones downgraded the u.s. in july of 2011, before s&p and they don't take money from issuers. their model is hr institutional
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customers, institutional b aal ers. look at the model for these rating agencies. >> that's a tough one is there, i don't know if i'm qualifiedy to really comment on it. it's going to be a tough hurdle to prove that there was some sort of fraud lent activity there. but just like you, i'm going to be following the news on that topic. >> thank you for being my guest, carl, all yours. >> let's send it over to josh lipton and get a quick market flash. >> citi sees consumer spending on home goods. they say home goods sales will -- price target of $46, macys should grow up. target also a buy they say, as the company continues to roll
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out new brands and innovations in the category. citi analysts call it a stock that -- citi also reiterating a buy on jcpenney, also indicating strength in its home goods. >> jp morgan yesterday, in their walmart downgrades. and jc prk krrkcpennejcpenney. as i said earlier, be sure to tune in tomorrow, 11:30, about this time for an exclusive with the head of jcpenney, ron johnson on the one-year anniversary of that company's efforts to turn around. "squawk on the street" coming right back. how do traders using technical analysis streamline their process? at fidelity, we do it by merging two tools into one. combining your customized charts
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those things happen. meantime the president's going to propose a package of short-term spending cuts and tax increases. the president's scheduled to speak today at 1:15 p.m. if congress does not act, spending with increase. mac thornberry is on capitol hill this morning. congressman, good morning to you. >> good morning. >> so the early knock on the president's speech today is it is yet another attempt to avoid the sequester. you have said the sequester will be painful. is this a legitimate way around it? >> i don't know the details, but what i do know is that the house has passed a bill to replace the across the board cuts with so
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you still make a deferent in the debt but you don't hurt our military readiness. >> what kind of damage do you envision on defense if in fact the sequester takes place. we had a long discussion over the past couple of weeks north of grummond stock. what happened in the last few weeks of last year, as people worried about the fiscal cliff, how bad can it be? >> it going to be pretty bad. because remember the defense budget is only 19% of federal spending but it has to absorb 50% of the cuts. military salaries are exempt. where you do cut, it's going to much, much deeper. you're going to have furlows of civilian personnel most likely, you're going to just stop sending navy ships to some places, you're going to decrease our ability to deal with the
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unforeseen contingencies that could happen anywhere around the world. so it's security, but it's also economic, you're right. >> for the idea that we keep defense protected, the president may insist on other things in kind, like some sort of revenue. how open is the gop to that? >> if he talks about more tax increases, then i think it's all a political sham, taxes have been decided, they were decided with the fiscal cliff deal that congress approved and the president signed earlier this career. now the target has to be spoending. and it really has to be on mandatory spending which is 2/3 of the budget. you can't balance the budget on defense. in fact if you eliminated defense it would not balance the budget. so it's got to behe mandatory programs, that's what we have got to focus on and if he talks about anything else, i think he's playing games. >> if that happens, if revenue
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is a component, we have got 90 minutes until he speaks. but is it doa in that case. >> yes, i think in both the house and the senate, everybody agrees that taxes have been decided. bringing up more tax increases is not going to go anywhere, it's not a serious attempt to prevent sequestration. i hope that the commander in chief will do better than that. >> we will see at 1:15, congressman, thank you so much for your time. >> sure. >> congressman mac thornberry of texas. it's official, dell is going private, can the company make a turn around when it's out of the public eye? this is $100,000. we asked total strangers to watch it for us. thank you so much. i appreciate it. i'll be right back. they didn't take a dime. how much in fees does your bank take to watch your money?
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. today's big story, stockholder also receive $13.65 in cash per share can dennis berman is the marketplace -- guys good morning to you. >> hi, carl. >> dennis, how about the price? is that going to go any higher? >> it's not going to go any higher unless someone else comes in and makes a bid, which probably isn't going to happen given the dynamics, basically the blocking dynamics of michael
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dell. taking a step back here and asking a fundamental question about this deal, and that is how much cash on hand is going from dell's own books to fund this buyout? it's mentioned almost casually in the press release, but shareholders need to know how much of their own money is going to be used to pay for those shares. >> people have been asking, who is mike dell working for? as dennis wrote. fair question. >> he recuesed himself from the decision-making process. but this comes in any time a founder or ceo gets involved in a leveraged buyout. it's an even bigger deal here, because even though silver lake is involved, he's the -- if silver lake wants to fire
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michael dell, they can't do so. >> do either of you really believe that it would be easier to change, to work your way out of this pc hole if you don't have to answer to shareholders every day? dennis? >> it's a real existential question. if you're the management of hca, the owners of hca, you are really in the position to make a killing. it is a tough question for shareholders. and that question is the following, would we really tolerate, if dell says we're going to take 3 million-it would probably fall quite dramatically. so this is a question for sharehold shareholders, are they willing to tolerate this kind of risk? we're about to find out. >> i was going to add to that, clearly what we have learned
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from this is that michael dell doesn't want to be a public company. if the ceo is constantly being annoyed whether it's from hedge fund managers et cetera, he doesn't have to deal with that for a while. >> why is it that shareholders only get the downside of the great managerment of cfo'd. how come it can only improve in a private deal. >> we had to chuckle this morning, when hp put out a statement that essentially said, come on in, not the water's fine, but good luck. we already understand how tough this business is, when you're trying to revent it. i don't know if you got a chance to read that yet. >> that was amazing, what is hp thinking? they're sort of tempting fate. they should be so luckily to have a management buyout offer at hp. they raise a fair point, and
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that is about innovation and spending on r & d. where are they going to put the money to invest in. and we're going to try this, the journals, look at the budgets of both companies and see how they have been spending. the answer is not so great. >> will there be a follow-up deal? i mean can we put together a string of two or three megadeals like this? >> i don't think like this. this is -- i don't want to say unique, but there's a lot of unusual circumstances here, one, michael dell being involved in this, and microsofts involvement. as hard as it is to line up $15 billion in debt financing, which in this case partially got helped by cash. there is an equities problem, and michael dell helped solve that gap. maybe there's another one off like this, but i don't think
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this is a string. >> guys, thank you so much. we'll sew you later. up next, the latest details from the yum brands conference call. back off the break. all stations come over to mission a for a final go. this is for real this time.
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